How much do taxes and benefits narrow the gap between rich and poor?

They can narrow it a lot, though how much depends on the country. Economists call the transfer of income and wealth from some people to others through taxation, welfare, public services and similar means redistribution. The way to see its size is to compare the Gini coefficient before and after taxes and benefits. In the United States in 2016, the Congressional Budget Office put the Gini at .59 on market income and .42 after taxes and transfers. In South Africa, a Gini of about 0.63 to 0.7 before taxes dropped to 0.52 after social assistance and 0.47 after taxation.

Countries differ in how much they do. US inequality is comparable to other developed countries before taxes and transfers but among the highest after them, because the US shifts relatively less income from higher to lower earners. Japan redistributes much less, but because its initial wage distribution is much more equal than that of Western economies.

Most of this work is done by progressive taxes, where higher earners pay a larger percentage of their income, and by benefits. Some argue the state should instead prevent inequality in the first place, an idea called predistribution. Free basic education is one such tool: it reduces the inequality that would otherwise exist, whatever the parents' wealth.

Is it worth it? That is argued. In a theoretical model, redistribution increased consumption but reduced the incentive to work, which reduces growth. Another view in the literature is that nobody knows how much inequality is good, though some is needed. And attitudes differ: poor Americans tend to favor redistribution less than equally poor Europeans.